World stocks fall and metals slump as US threatens yet more China tariffs

The concerns were also evident in currency markets. The Australian dollar, often seen as a proxy for Chinese economic fortunes, fell 0.6% as did South Korea’s won and Mexico’s peso, which also faces the threat of Trump ditching the North American Fair Trade Agreement (Nafta).

It was industrial metals prices, though, that took the heaviest hit over worries that the dispute could ultimately dent China’s commodity-hungry economy. Copper, zinc and lead all slumped between 3% and 4% to their lowest levels in about a year. Copper was down 3% at $6,141.50. Nickel, tin and aluminium also dropped to multi-month lows.

Trump’s latest move took the wind out of investors’ sails, largely because the central scenario for many in the markets is that Washington will eventually step back from the escalating row and settle for some sort of compromise. The more it turns up the heat, therefore, the more likely the tariffs get implemented — just like the 25% levies on $34bn of Chinese and US imports triggered on Friday.

There is a two-month period of public comment on the latest proposed list before the tariffs get imposed.

“There certainly is going to be pronounced risks, mainly because we’ve now moved on to the tit-for-tat-for-tit phase of it,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. “This is going to drag on until they can all come to the table and agree to even the playing field. But the unpredictability of the situation continues to rattle the markets.”

Wall Street in focus

Washington had proposed the extra tariffs after efforts to negotiate a solution to the dispute failed to reach an agreement, senior administration officials said on Tuesday.

Wall Street’s S&P 500 had closed at its highest level in almost six months overnight, but futures on the index and the Dow Jones were down 0.8% and 0.9%, respectively, which pointed to a bumpy restart later.

The yen, often sought in times of political tensions and market turmoil, gained against a number of peers. The dollar traded at ¥111.02, pulling back from a near two-month peak of ¥111.355. The euro fell 0.2% to $1.1725 and the Australian dollar lost 0.6% to $0.7408. China’s yuan, meanwhile, dropped 0.45% against the dollar to move back towards an 11-month low plumbed last week.

Demand for assets that traditionally ride out turbulence saw the 10-year US treasury note yield fall three basis points to 2.84%. This was a pullback from a one-week peak of 2.875% scaled the previous day.

Bond yields across most of Europe were two to three basis points lower too. Germany’s 10-year bund yield fell two basis points to 0.3% though UK gilts missed out as Brexit turmoil continue to batter the country’s ruling Conservative party.

Oil prices were also hit by the trade-war concerns. The US had said it would consider requests from some countries to be exempted from other sanctions that it plans put into effect in November that prevent Iran from exporting oil.

Brent crude futures lost 0.8% to $78.22 a barrel. Oil had risen the previous day, supported by a larger-than expected US stock draw and supply concerns in Norway and Libya.

Reuters